Updating the reserve price in common value auctions

13 Sep

Here's what you need to know to make the most of reserve price buying and selling.When a seller lists an item for auction on e Bay, they are given the option to supply e Bay with an optional "reserve price" for the item.In it, the auctioneer opens the bidding at a reserve price (which may be zero), the lowest price he is willing to accept for the item.Once a bidder has announced interest at that price, the auctioneer solicits further bids, usually raising the price by a predetermined bid increment.He established four major (one-sided) auction types: (1) the ascending-bid (open, oral, or English) auction; (2) the descending-bid (Dutch) auction; (3) the first-price, sealed-bid auction; and (4) the second-price, sealed-bid (Vickrey) auction.The most common type of auction, the English auction, is often used to sell art, wine, antiques, and other goods.This statistic is independent of the distribution of valuations.

If a seller supplies a reserve price, and bidding for the item doesn't reach the price before the auction is over, the seller is not required to sell the item to the auction's high bidder.

The Dutch auction, also a first-price auction, is descending.

We consider a common value auction model with bidder participation determined jointly by nature and by bidder optimization.

The results of a reserve price auction, however, can be different from what many e Bay bidders expect, and the rules surrounding reserve price auctions are slightly different.

This can make for a confusing and frustrating state of affairs.